Dive Brief:
-
Shares of electronics retailer Best Buy fell 11% in early trading on Thursday after reporting holiday sales that missed expectations. At press time, share prices had risen again, but were still down 8% over yesterday's close.
-
U.S. same-store sales for the retailer dropped 1.2% in November and December, compared to a 3.4% rise in the same period last year. Meanwhile, the retailer's online sales grew 12.6%.
-
CEO Hubert Joly said that many consumers have upgraded their smartphones and demand for mobile devices is soft, adding that demand for health products, wearable devices, home theaters, and appliances was stronger and helped boost revenue.
-
The retailer lowered its sales outlook for Q4 to a decline of 1.5%, compared with its previous guidance for flat sales, anticipating continued soft demand for phones and other electronics.
Dive Insight:
The bright spot in the gloomy report is that the retailer’s web sales grew 12.6% and its non-phone categories were fairly healthy. While expensive, its no-minimum free shipping policy during the holidays may have paid off, while it also reported success in avoiding heavy discounting.
Besides its web sales increase, the good news for Best Buy is that its adjusted operating income rate is expected to decline 10 to 15 basis points, compared to its previous expectation of a rate decline of 20 to 35 basis points. But those improved margins come largely from cost-cutting measures, and some investors worry the retailer has been unable to sustain growth since CEO Hubert Joly took over four years ago. Best Buy shares have fallen from nearly $40 in early 2015 to about $26 at press time.
“From a financial perspective, despite a slightly softer-than-expected topline, we are improving our fourth quarter operating income rate outlook as a result of our continuing conviction to a disciplined promotional strategy and strong expense management,” CEO Joly said in a statement. “These results and our outlook are driven by the solid execution of our holiday strategy and the leveraging of investments in our merchandise assortment, digital capabilities, higher in-stocks, Blue Shirt and Geek Squad expertise and faster shipping. Ultimately, this performance is the result of the hard work, dedication and customer focus on the part of all of our associates.”
